Former Harmonix Shareholders Suing Viacom for Millions of Dollars

Harmonix is accusing Viacom of deliberately cheating it out of bonuses in by manipulating deals to keep Rock Band profits as low as possible.

A group of former Harmonix shareholder, including founders Alex Rigopulos and Eran Egozy, have come together to sue the studio's current owner, Viacom, for millions of dollars in unpaid bonuses.

At the center of the lawsuit is Harmonix's acquisition by Viacom in 2006. Viacom paid $175 million for the developer, with potential millions more to follow in performance-related payouts. For every dollar of profit the Rock Band series made in 2007, above a threshold of $32 million, Viacom would have to pay $3.50. A similar deal existed for 2008, only with a threshold of $45 million.

Viacom has paid out $150 million for 2007, but has yet to pay anything for 2008. Indeed, in a recent financial filing, it suggested that it might even be owed part of the money back from Harmonix, although it didn't expand upon why. The former shareholders accuse Viacom of deliberately manipulating payments and profits for its own benefit in violation of the "implied covenant of good faith and fair dealing" that was an inherent part of the deal between the two companies.

The former shareholders allege, for example, that rather than reduce EA's distribution fees when it had the chance to in 2008, Viacom instead kept the price the same - thus not making the games any more profitable - and negotiated benefits for itself. The shareholders say that Viacom elicited millions of dollars of advertising revenue from EA in 2008, and then reduced the price in 2009, after the payout period was over.

In terms of damages, the suit suggests that an appropriate sum would be the money owed to the former shareholders from the as-yet unpaid 2008 deal, and the money that Viacom received from EA from the advertising deal and some accelerated cash payments.

A "resolution accountant" is currently calculating the exact value of these bonuses and it's thought that terms of the deal mean that the total will be unaffected by the decline in the music game genre in recent years. Also included in the suit is a sum of $13 million dollars, which has been held in escrow since the time of the Harmonix's acquisition, which the shareholders believe they are entitled to.

If Viacom really does believe it has a case for claiming back some of the money it has paid the Harmonix shareholders, then it seems likely that it will file a countersuit shortly.